A dispute between a Salem hospital and the Medicaid plan in Marion and Polk counties is threatening to derail Oregon’s ambitious health care transformation project.

The state’s House Ways and Means Committee is scheduled to hold a public hearing Monday on House Bill 3309, which is intended to force the hospital to drop a lawsuit against the counties’ coordinated care organization (CCO). But providers in other parts of the state say the measure could have a chilling effect on hospitals’ willingness to participate in the CCO process, which could undermine the state’s health reform effort.

“It would be a huge, possibly, arguably, fatal blow to the whole health care transformation,” said Rep. Jason Conger, R-Bend.

Oregon has transformed its Medicaid program, the Oregon Health Plan, into 15 regional health plans that are paid a fixed amount to provide all of the care needed to keep low-income individuals healthy.

Each of the 15 CCOs must determine how it will use its allocated funds, including how much it will pay the different hospitals, physicians and other health providers in its region.

But for months, Salem Hospital and Willamette Valley Community Health have not been able to agree on whether the hospital’s pre-CCO contract remains in force and whether the hospital should be paid at 68 percent or 64 percent of Medicare rates. Last year, the hospital filed a lawsuit against the CCO over the contract issue, and so far they have not entered into mediation.

The bill, introduced by Reps. Brian Clem, D-Salem, and Kevin Cameron, R-Salem, would create a process by which a CCO could petition the Oregon Health Authority to remove perceived troublemakers from the CCO board. Forced-out members would be barred from contracting with the CCO for five years and see their payments cut to 58 percent of Medicare rates.

“It’s clearly a poison pill,” Willamette Valley CCO Chair Ruth Bauman said. “It’s meant to be a very severe penalty.”

While the measure would apply initially only to the Marion/Polk CCO, the bill calls for state officials to make a recommendation on expanding the rules statewide after 12 months. And that has hospitals in other parts of the state worried.

Many are now considering resigning from CCO boards so they won’t be exposed to a drastic cut in Medicaid rates if they run afoul of the other board members. Medicaid makes up such a large percentage of a hospital’s revenue that such deep cuts could undermine their ability to care for low-income patients.

“That is (a) very, very, very dangerous proposition,” said Robin Henderson, executive director of the Central Oregon Health Council and director of government affairs for the St. Charles Health System. “This is a health system that has responsibility to the community. We have to keep the wheels on the bus.”

If hospitals abandon the CCO boards, they could still contract to care for Medicaid patients, but they wouldn’t be active participants in the transformation process. Many believe that would be a death blow to the effort.

“It’s not even giving a chance for CCOs to work” said Andy Van Pelt, chief operating officer for the Oregon Association of Hospitals and Health Systems. “This is just completely counter to what everybody agreed to.”

About CCOs

CCOs were set up to be locally designed and locally run, with safeguards to ensure that local providers worked together to improve care. Each CCO must exceed benchmarks in at least 75 percent of 17 quality measures to receive a full payment, and that is unlikely to happen if they don’t work together to improve care.

The Salem dispute is one of the first cracks in what has been a charmed start for the Oregon health reform efforts. The Obama administration agreed to front the state $1.9 billion to help transform the Medicaid program, and Oregon has been highlighted repeatedly as an example of how the federal Affordable Care Act will help improve health care.

But if the process bogs down in payment disputes, those goals might be hard to reach.

“Everyone is digging in and saying, ‘Give me my share,’” said Dr. Bud Pierce, a Salem oncologist and past president of the Oregon Medical Association. “If people maintain the idea that the whole system is set up to exploit them, then we’re never getting anywhere.”

Pierce says HB 3309 was the last resort for trying to resolve the dispute.

“Quite frankly, if the hospital doesn’t want to cooperate and use the resources of the legal department, they can stymie the whole operation,” he said. “So our only solution was to go to the Legislature.”

Salem Hospital officials say they, too, where left with no choice other than to file a lawsuit. The CCO had argued that the hospital must first go through a mediation process as outlined by its contract.

“You can’t claim the organization doesn’t have a contract, and then say they have to do mediation under a contract you say doesn’t exist,” said hospital spokeswoman Sherryll Johnson Hoar. “Our only alternative was to go to court.”

The two sides have agreed to mediation and have settled on a mediator. But the CCO wants the mediation to be limited to the contract dispute, while the hospital wants to address other issues as well. Meanwhile, the legal and the legislative processes continue, albeit at glacial speeds.

“I have interpreted that to mean that there’s not enough support for the bill,” Conger said. “The law is a very blunt tool. It’s not a scalpel by any means. And something like this could make a change to the system that’s pretty significant.”

Many believe the bill is primarily meant to pressure the hospital back to the negotiating table. Bauman noted that the hospital didn’t agree to mediation until after the bill was introduced. More importantly, the dispute is keeping the Marion/Polk CCO from making further progress in transforming care.

“It’s a distraction that we have a significant partner that’s not coming to the table,” Bauman said.

Hospital officials maintain they still believe in the CCO approach and want to find an amicable resolution.

“We are hopeful that it will work,” Hoar said. “We’re going into mediation with good expectations, that this is going to be the catalyst for having great relationships in the future.”

Providers across the state would like nothing more than to see the dispute resolved, and the legislation scrapped as soon as possible.

“If they’re going to do mediation,” Henderson said, “then this bill should come off the table right now.”